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Given the following information about Xavier Ltd for the year ended in 2020
Given the following information about Xavier Ltd for the year ended in 2020. Assume 360 days to a year. Calculate: a) Length of Operating Cycle b) Cash Operating Cycle
Profit and Loss Account Data (Rs million)
Sales
90
Cost of Goods Sold
66
Balance Sheet Data Beginning 2020 Ending 2020 Inventory 10 16 Accounts Receivable 14 20 Accounts Payable 10 16
Expert Solution
Computation of Length of Operating Cycle:
Operating Cycle = Day's Sales of Inventory + Day's Sales Outstanding
Here,
Day's Sales of Inventory = 360/Cost of Goods Sold*Average Inventories = 360/66*((10+16)/2) = 360/66*13 = 70.91 days
Day's Sales Outstanding = 360/Sales*Average Accounts Receivables = 360/90*((14+20)/2) = 360/90*17 = 68 days
Operating Cycle = 70.91 days + 68 days = 138.91 days
Computation of Cash Operating Cycle:
Cash Operating Cycle = Day's Sales of Inventory + Day's Sales Outstanding - Day's Payable Outstanding
Here,
Day's Payable Outstanding = 360/Cost of Goods Sold*Average Accounts Payable = 360/66*((10+16)/2) = 360/66*13 = 70.91 days
Cash Operating Cycle = 70.91 days + 68 days - 70.91 days = 68 days
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